Alternative investments on the wane: Watson Wyatt

Super funds reduced new commitments to
alternative investments in 2008 amid a tepid decline globally in alternative
assets due to capital calls and some hedge funds freezing redemptions, new
research has found.

Watson Wyatt’s Global Alternatives Survey
for the year to December 2008, which analyses the Top 100 alternatives managers
by assets under management, found alternative assets managed on behalf of
pension funds by the world’s largest investment managers fell by around 1 per
cent to US$817 billion (A$1.03 trillion) last year.

This modest decline contrasted with a 40
per cent increase in the amount of alternatives invested with top managers
during 2007, compared to 2006.

The survey covered 143 funds managers and
US$872 billion in assets across real estate, private equity fund of funds, fund
of hedge funds, infrastructure and commodities.

Ross Barry, head of portfolio construction
group at Watson Wyatt Australia, said while super fund inflows into
alternatives continued, this was largely a result of commitments made in
previous years and was broadly offset by downward revaluations.

“Particularly with private equity and to a
lesser extent infrastructure, a lot of Australian super funds made commitments
during 2005 to 2007 and with private equity that money then gets subsequently
called down over the following two to four years,” he said.

“So even though a lot of [funds] stopped or
significantly slowed down the pace of new commitments, they’re still getting
capital calls in respect of commitments from a year or two ago.”

The rate at which capital was returned to
investors also slowed sharply as normal markets disappeared, and some managers
imposed freezes on redemptions, Barry added.

Those two effects had pushed assets in the
market up, however further downward revaluation, particularly in the unlisted
markets, is expected to lead to a more significant net decline in global assets
under management this year

“In the survey we see it most poignantly in
the
UK and
Europe;
there were a lot of very significant write downs of assets during 2008,” Barry
said. “It’s really only been the first half of this year that we’ve seen a bit
of an acceleration in some of the revaluation of real estate assets here in
Australia.”

The research indicates allocations to
alternative assets have continued to rise and now account for 17 per cent of
all pension fund assets globally, up from 7 per cent 10 years ago. 

Thirteen Australian managers made the Top
100 alternatives managers list, with Macquarie Group ranked number 1 and
Colonial First State Global Asset Management, AMP Capital Investors, Industry
Funds Management and QIC all in the top 50.

Globally, ING Real Estate Investment
Management is the largest real estate manager of pension fund assets with
US$40.9 billion, while HarbourVest Partners tops the private equity fund of
fund table with US$22.4 billion

Blackstone Alternative Asset Management
manages the largest proportion of hedge fund of fund assets with a total of
US$13.5 billion, while
Macquarie tops infrastructure
with US$44.4 billion and PIMCO is the biggest pension fund commodities manager
with US$3.4 billion.